Obama Administration Preparing Changes to Offshore Drilling Rule

By Amy Harder

WASHINGTON–The Obama administration is preparing to make a major offshore drilling regulation somewhat more favorable to the oil and natural gas industry, compared to a preliminary proposal issued last year, according to documents reviewed by The Wall Street Journal.

The Interior Department last week sent the White House final rules aimed at preventing the kind of explosion that erupted more than five years ago on BP PLC’s Deepwater Horizon rig. The draft rules impose new standards on equipment designed to keep control of a well, and they require real-time monitoring of certain kinds of drilling that are undertaken in deep water or under high pressure.

The proposed rules require a series of tests and maintenance on a device called a blowout preventer, a stack of valves that sits atop a well on the ocean floor and is designed to seal it off in an emergency. The preventer on the Deepwater Horizon rig failed to stop the flow of oil and gas on April 20, 2010, and the out-of-control well led to the biggest offshore oil spill in U.S. history.

In the final version of the rules sent to the White House for review, the Interior Department relaxed a handful of requirements industry complained were too onerous.

A department spokesman wouldn’t comment on the changes, noting they are under final review at the White House. Once that process, which typically takes up to three months, is complete, the department will announce the final rules.

The offshore drilling regulation is the third and biggest set of rules the Interior Department has issued in response to the BP oil spill. They are also part of a broader regulatory push by the Obama administration clamping down on the oil and natural gas industry’s environmental impact.

The final rules are expected to provide more flexibility to companies to maintain what is known as a safe drilling margin. In 2010, BP decided to drill through a fragile layer of rock even though the pressure risked cracking the formation open. A federal judge in 2014 called the choice “dangerous” and concluded that it set in motion a chain of events that led to the Deepwater Horizon blowout.

The revised final rules set forth a specific standard for a safe drilling margin, which dictates the amount of pressure in the well, as the initial proposal did. But unlike the original version, it allows companies to deviate from it if they provide justification and documentation as to why it is necessary and safe to do so.

“This revision should address the concern that a rigid drilling margin requirement would result in stranded resources and lost jobs due to an inability to drill a significant number of wells,” according to the Interior Department documents reviewed by the Journal.

Other changes include requiring reviews of a blowout preventer every two weeks instead of every week as initially proposed. The revised regulation also requires a comprehensive review–in which the equipment and related parts are taken apart–to be conducted gradually over five years instead of all at once every five years.

“This modification should reduce significantly any industry estimated costs associated with this provision,” the document states.

Still, the overall structure of the final rule the Interior Department sent to the White House is largely the same as the initial proposal. The department says it is expected to impose similar costs on the industry–$883 million over 10 years–while offering benefits of $656 million in the form of time saved and reduction of potential spills.

Write to Amy Harder at amy.harder@wsj.com

Breaking the story

Amy Harder was first to report that the Obama administration is preparing to make a major change to the offshore drilling regulation that may be more favorable to the oil and natural gas industry. The revised draft rule is aimed at preventing the kind of explosion that erupted more than five years ago on BP PLC’s Deepwater Horizon rig. The rules will impose new standards on equipment designed to keep control of a well, and will require real-time monitoring of certain kinds of drilling that are undertaken in deep water or under high pressure, according to documents reviewed by The Wall Street Journal.

Timeline

February 9, 2016, 7:42

Obama Administration Preparing Changes to Offshore Drilling Rule

February 9, 2016, 7:42

Regulation in Response to BP Oil Spill

February 9, 2016, 7:42

Change Would Add Flexibility, Make Rule Somewhat More Friendly to Industry

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